Date: January 12, 2012

Subject: Peer Review of a Refining Industry Cost Model

From: Sandra Burns, RTI International

To: Lester Wyborny, US EPA

1.0 Background

An independent, third-party peer review was conducted of a refinery-by-refinery cost model developed by 

EPA. The Cost Model Spreadsheet developed by EPA models the cost for each refinery to reduce their 

gasoline sulfur levels. This memo is a summary of the observations and recommendations of Mr. Charles 

Lieder. The review was facilitated by RTI International.

2.0 Initial Observations

Mr. Lieder noted that the submitted Technical Package (Cost Model Spreadsheet and supporting files) 

can only be read and understood if the third-party reviewer has almost unlimited access to the EPA 

Author(s). The Technical Package is a working draft from the desks of the EPA Author(s). With their 

instruction, a reviewer can understand the concepts behind the Cost Model Spreadsheet. 

3.0 Summary Comments

EPA requested that six areas be peer reviewed. These are numbered one through six below, and are 

followed by Mr. Lieder’s comments. 

1. Review and comment on the overall design of the refinery-by-refinery cost model for estimating the 

cost of sulfur control, including: (a) The means for modeling each refinery’s operations, including their 

gasoline volume and sulfur level as tools for calibration, (b) the use of FCC naphtha desulfurization 

equipment as the most cost-effective means for reducing gasoline sulfur levels, and (c) comment on how 

the refinery-by-refinery cost model could be improved.

(a) Based on the Nov 9th RIA provided to the reviewer and the Model’s “refinery-core-calculations” 

(developed in MSAT / Benzene Regulation modeling), the spreadsheet modeling is appropriate and 

similar to approaches used in the U.S. refining industry. EPA’s access to confidential refineryspecific operations information from EIA (in the peer review model) and gasoline volumes and 

quality information available from its own reformulated gasoline data base (removed from the peer 

review model), provides the model a firm foundation for checking calculations and subsequent 

calibration. 

(b) EPA selection of a `FCC naphtha desulfurization’ strategy is appropriate and should be the costeffective path. Recently, a July 2011 API Study, Potential Supply and Cost Impacts of Lower Sulfur, 

Lower RVP Gasoline with refinery modeling (Baker & O'Brien, 2011) relied heavily on FCC naphtha 
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desulfurization to attain a Gasoline Pool sulfur level of less than 10 ppm. The refinery modeling 

study done by Mathpro also relied on FCC naptha HT (Mathpro, 2011).

(c) Because the EPA reformulated gasoline quality and volume data which it could use for calibrating 

the model are confidential, the Peer Review cannot include them or evaluate the original, 

corrections, refinements, or final EPA selections for calculations. Therefore, the Peer Review must 

look at the current spreadsheet and it is acceptable. The main improvement area is in capital cost 

data for desulfurization of FCC naphtha and Light Straight Run / Natural Gas Liquids. 

(d) The clarity, understanding and logic flow of the spreadsheet model could be enhanced by descriptive 

titles and comment fields for key data and calculations. 

The overall design of the refinery-by-refinery cost model is appropriate since it contains both a sound data 

foundation (assumed as firm on basis of EPA's statements about their source of confidential data and its 

use in calibration) and an accepted design / methodology for refinery spreadsheet calculations and cost 

estimations.

2. Review and comment on the inputs for the various desulfurization technologies provided to EPA to 

ensure that these are being represented adequately to correctly estimate the desulfurization costs. 

EPA sought inputs and cost information for the desulfurization technologies which would be predominant 

in a near-term Tier 3 Fuels Sulfur Program. Unfortunately, only one source provided detailed, complete 

engineering information which could be the basis for confident estimation of capital costs for the 

necessary new desulfurization targets. Thus to move the calculations forward, EPA has currently had to 

make numerous assumptions and estimations to select and calculate desulfurization costs for the 

technologies for which they do not have technically complete engineering information. 

EPA must clearly communicate this situation to potential users of the results of the Cost Model 

Spreadsheet (or users of spreadsheet). Mr. Lieder recommends that EPA make another `request for 

information’ of a detailed engineering nature (citing the type of information that was received from one 

desulfurization vendor).

3. Review and comment on the sulfur levels assigned to each gasoline blendstock.

The Nov 9th RIA describes the logic of Tier 2 and potential Tier 3 sulfur levels of refinery blendstocks. The 

document provides an appropriate display of technically-sound blendstock levels.

4. Review and comment on the assumption that some refiners will need to desulfurize their LSR to 

comply with lower sulfur gasoline.

Assumption of the need to desulfurize LSR and NGL is technically sound. Other studies note the 

desulfurization of `straight-run naphthas’; and details of use in their appendices (Baker & O’Brien, 2011; 

Mathpro, 2011). EPA’s approach to premise desulfurization of all LSR / NGL with either existing, 

revamped, or new units is a technically sound way to estimate the potential impact of a Tier 3 Fuel Sulfur 

Program.

5. Review and comment on our means for estimating the blendstock volumes for each refinery.

The Nov 9th RIA provided a well-documented set of analyses that document how the blendstock 

volumes were estimated in the cost model. It is sound, transparent and supported by substantial data and 

references.

6. Ensure the integrity of the refinery-by-refinery cost model by working through the equations present 

throughout the spreadsheet. Check the equations throughout the spreadsheet with sufficient frequency 

(i.e., one refinery in each PADD) to ensure that the refinery model formulas refer to the appropriate cells. 

Report any errors.
 3

For production of 10 ppmS Gasoline Pool, 13 refineries (out of the ~101 refineries) were checked for the 

”Costs 10ppm” worksheet calculation and the background calculations which covered data and 

calculations from almost every worksheet that was reviewed; especially T3,, Proc 1 – Proc4, Crude 

Regression, Vendor Cost Info, 09 ref cap data, Data for 2009, and Utility & Capital Costs. The 

methodology of the cost calculation was sound for these 13 refineries. For one unique technology 

implementation, a calculation error was identified and communicated to EPA

 

For production of 5 ppmS gasoline pool, 8 of the above 13 refineries were checked for the ‘Costs 5ppm’

worksheet calculation and the background calculations which covered almost every worksheet. Again, the 

methodology of the cost calculation was sound for these 8 refineries (for same unique technology 

implementation, a calculation error was identified) .

4.0 Detailed Comments

EPA provided several cost-estimates from various sources; these were the basis for EPA’s analysis of 

sulfur-reduction technologies and generation of capital cost estimates to be used by refineries in the main 

Cost Model spreadsheet. 

4.1 Cost Model Calculation Methodology

Basically, the methodology and flow-of-calculation is technically-sound. Note that that the review will 

subsequently comment on the soundness of the data (such as capital costs) that are used in this 

methodology and the exact decision points for technology choices in sulfur reduction strategies for a 

refinery. One key worksheet in the model pulls together the cost model data and methodology to produce 

the estimated cost to comply with a 10 ppmS gasoline pool requirement on a refinery-by-refinery basis.

Mr. Lieder conducted an analysis of 13 refineries which permitted an in-depth understanding of the EPA 

approach. The following key aspects were noted.

 Appropriately addressing the status of and need for additional FCC naphtha desulfurization. 

methodology, calculations and logic flow is defensible.

 Addressing the comparison between maximum-estimated FCC Gasoline and actual 2009 FCC 

gasoline: about a dozen refineries have larger actual 2009 than the maximum-estimated; 

however, the spreadsheet always used maximum-estimated in subsequent calculation. EPA

needs to decide which MAX FCC gasoline volume is used for sizing FCC post treaters. 

 Methodology uses extensive reference data from the Utility & Capital Costs worksheet. The data 

and use calculations are appropriate. However, Mr. Lieder found an error in the refinery/PADD 

association; EPA should make certain that refineries are associated with correct PADD. 

 For the appropriate FCC desulfurization technology and sulfur level for a particular refinery this

fuel program cost calculation relies on many data inputs. Again, data from the utility & capital 

costs worksheet is used extensively; some EPA assumptions are embedded in the Utility & 

Capital Costs worksheet (such as return on investment (ROI) of 7% and fixed operating costs as 

6.7% of capital cost). More documentation as to where this data is used would be useful.

 Also, for the appropriate FCC desulfurization technology and sulfur level for a particular refinery, 

the crucial inputs are the capital costs and associated operating costs. Current input data 

required extensive EPA analysis and calculation as well as capital selection (see extensive 

discussion in RIA). EPA needs to re-request detailed engineering input on capital costs (for new 

or revamped or expanded FCC post treaters) from the public.

 For one refinery the total cost section needs to be reviewed. EPA needs to review equations in 

the LSR Addition / Expansion section for total capital employed, as an error was found and there 
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is a chance that several equations need to be revised. This was communicated to EPA, and Mr.

Lieder believes it is likely that this is the only refinery with this specific calculation error.

4.2 Vendor Cost input Information and Use by EPA

EPA received only limited technical information from vendors. Thus, for the refinery that must meet 

potential Tier 3 Fuel Program requirements, EPA had to assess the level and range of sulfur reductions, 

and propose various technologies which can be added to current refineries and estimate the capital and 

operating cost of those various technologies. Because such limited data was made available, EPA had to 

modify the information provided, extrapolate for several cases and estimate substantial areas of cost and 

operating factors. Thus, EPA’s cost estimates do not have broad input from engineering and construction 

firms. If feasible, EPA should seek additional capital cost estimates and/or input from an expert in capital 

cost estimation. 

Mr. Lieder reviewed the worksheet containing capital cost information. The following key aspects were 

noted.

 A detailed description of the logic flow and results is needed. EPA needs to critically review the 

results. Because of the lack of detailed interpretation of data in their submittal, EPA had to take a 

circuitous route to the presented numbers. The capital costs of Vendor 1 were not well 

documented and therefore the reviewer was unable to comment critically on the validity of EPA’s 

capital cost estimate.

 Although possibly futile, EPA should consider other routes to obtaining additional capital cost 

estimates such as another Request For Information; contracting with capital cost experts or a 

refining consultant .

4.3 Methodology for Individual Refinery Selection of Sulfur-reduction Technology for Tier 3 

Sulfur Targets

The methodology can be defended; but is open to a rational technical discussion of decision points and 

criteria of technology choices from others who may have slightly different technical criteria.

The methodology for individual refinery decisions on FCC Naphtha and LSR/NGL desulfurization is 

described in the RIA and is a useful background. 

4.4 Calculating EPA’s Fuel Program Costs with Cost Model

1. Refinery Capacity methodology: EPA has obtained data from EIA; the experts on such U.S. data. 

Best source of U.S. data collected under DOE-EIA legal imperative.

2. Blendstock Production Volumes methodology: The methodology was peer- reviewed for the benzene 

reduction rulemaking / model spreadsheet. A quick review of the methodology shows that the approach is 

detailed and in-line with other technical approaches. This explanation of “Estimating Individual Refinery 

Gasoline Blendstock Volumes” in the Nov 9th RIA is more than eight pages of tables and analysis. This 

well-documented set of analyses is sound, transparent and supported by substantial data and references.

3. Blendstock Sulfur Levels & methodology: The extensive RIA narrative explains the logic of Tier 2 and 

potential Tier 3 sulfur levels of refinery Blendstocks, and displays technically-sound blendstock levels. 

4. Utility & Capital Costs: Well-referenced information is presented for use as factors in subsequent 

spreadsheet calculations. A small amount of documentation as to the use of the data in this worksheet

would be useful. 
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5.0 References

Baker & Obrien, 2011. Potential Supply and Cost Impacts of Lower Sulfur, Lower RVP Gasoline. 

Prepared for the American Petroleum Institute. Available online at 

http://www.api.org/Newsroom/upload/110715_LowerSulfur_LowerRVP_Final.pdf

Mathpro, 2011. National Association of Clean Air Agencies Report’s Refining Economics. Available online 

at http://www.theicct.org/pubs/ICCT04_Tier3_Report_Final_v4_All.pdf